Living on Uneasy Street

It's nice to anticipate sunny weather, but it's a good idea to carry an umbrella just in case the forecasts prove overly optimistic.

Yes, the market will rally if World War III didn't start last night. The market will also rally if World War III does start, because the Federal Reserve will surely lower interest rates.

We chuckle uneasily at gallows humor here on Uneasy Street because we're still required to maintain an upbeat veneer of endlessly cheerful optimism even as we sense that the forces currently in play are beyond the control of individuals or groups, no matter how powerful they may be, and that these forces will follow a course to an end no one can predict with any degree of upbeat confidence.

Back when we lived on Easy Street, things were getting better for everyone in varying degrees and the ladder of social mobility was available to all: anyone could improve their prospects by putting in the effort.

Fortunes were being minted, lists of reasons to be optimistic proliferated like overfed rabbits and spots of bother ran off the road on their own, requiring nothing of us.

Life on Uneasy Street is, well, different. The lists of reasons to be optimistic are still everywhere, but they now ring hollow, as those conjuring the lists sound increasingly frantic: come on, people, get with the program, it's all gonna be wunnerful, AI, AI, AI, Roaring 20s, blah blah blah.

The only true believers are those paid to shill the optimism by those seeking to maximize their profits via selling the sizzle rather than the actual steak. The entire exercise of trying to convince us that we still live on Easy Street is simply more evidence that Easy Street is a figment of imagination.

Now that various forces have been unleashed, gravity and the lay of the land will dictate the course of history. Yes, yes, our technological powers are god-like, we're going to Mars, there's a new (and immensely profitable, of course) technological solution to every problem, so just buy, buy, buy the latest gadget or med: imagine that, you can talk to your refrigerator! Wow. That solves a ton of pressing problems.

Too bad the fridge fails in a few years and has to be replaced, the med must be taken forever or your ill health returns, the side effects require a couple more meds, each of which has their own side effects, and going to Mars has no causal connection to actually solving problems here on Earth with some new technology.

Cycles play out despite our cheerleading inspirational rah-rah. Humans respond the same old way to the tightening of various screws: they start hoarding what's scarce, start seeing conquest and war as the go-to solutions to scarcities and rivalries, reasons to cooperate wither under the relentless sun of crisis while reasons to disagree proliferate most disagreeably like noxious weeds.

Just like all the other creatures on the planet, humans expand their consumption and numbers in times of plenty and are unprepared for the inevitable asymmetries of supply (stagnant or declining) and demand--forever rising, as growth is the one essential for the status quo, regardless of ideological type or label.

As supplies no longer exceed demand, inflation (loss of purchasing power of wages) eats the bottom 90% alive, while the rise of debt that so wondrously expanded the asset wealth of the top 10% starts eating its own tail, as interest rises faster than wages or actual production.

Various grandiose solutions are promoted that claim to fix the pressing problems. Some are absurd techno-fantasies (huge mirrors to deflect solar radiation--never mind the increasingly untenable cloud of space junk orbiting Earth), and some sound appealing but are not as painless as advertised, for example, the clearing away of all debt with a jubilee in which all debts are instantly forgiven.

A debt jubilee is certainly appealing to debtors and those who see the cliff ahead, but recall that all debt is an asset that is holding up an asset class far larger than the debt itself: mortgage debt is what props up the entire global real estate market, and what happens to valuations when debt ceases to exist?

Those who see jubilee as a solution also tend to ignore that all this debt is an asset of which 90% is owned by the wealthy class who run the status quo. Every bond, every mortgage-backed security and every bundled student loan / auto loan is an asset owned by someone or some entity who depends on that asset and its income stream for their wealth and thus their political power.

To hazard a guess based on human history, the wealthy / powerful will probably not be too keen to surrender the vast majority of their wealth and thus their power in the laudable pursuit of eliminating all debt and starting over.

Again based on the usual human responses to decay, decline, scarcities and threats to "what's mine," we can anticipate the elite's preference for a messy, chaotic form of jubilee in which various borrowers default and the underlying assets that provided collateral for the loan will be liquidated.

The elite hope that this messy, chaotic form of jubilee will reduce the debt so gradually that the system that benefits them will continue on its merry way. This hope is misplaced, however, for when collateral gets auctioned off at bargain prices, the value of all other similar assets drops accordingly.

And since nobody wants to catch the falling knife of crashing valuations, buyers are scarce, so the selling begets more selling and prices are pressured lower. Those who reckoned they were "buying the bottom" are wiped out, increasing the reluctance of survivors to take the risk of buying assets which could get much cheaper.

Soaring defaults tend to self-reinforce via feedback as the herd gets skittish and the appetite for risk vanishes like early morning mist in Death Valley. As buyers of crashing assets are carried out on stretchers, those who still own the sinking assets are watching their treasured wealth disappear, so they sell--at first with high expectations, and eventually in pure panic.

The future looks cloudy here on Uneasy Street, and everyone's still hoping for sunny days rather than a deluge. It's nice to anticipate sunny weather, but it's a good idea to carry an umbrella just in case the forecasts prove overly optimistic.

Here are three snapshots of what we're told is Easy Street: global debt skyrocketing:



Federal debt skyrocketing:



Financial wealth of the bottom 50% plummeting:



But think of the opportunities pre-cliff-dive:



As assets are liquidated, look for "likes" and upbeat Yelp reviews:

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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The Spear in AI's Back

That real harm will result from the use of AI tools is a given.

AI is like the powerful character in an action movie who looks invincible until they turn around, revealing a fatal spear embedded in their back. The spear in AI's back is the American legal system, which has been issuing free passes to tech companies and platforms for decades on the idea that limiting innovation will hurt economic growth, so we'd best let tech companies run with few restrictions.

The issuance of free passes to Tech monopolies / cartels and platforms may be ending. Letting Big Tech run with few restrictions has led to the smothering of innovation as tech monopolies do what every monopoly excels at, which is buy up potential competitors, suppress competition, pursue regulatory capture via lobbying and spend freely on deceptive PR.

Now anti-trust regulators are finally looking at the uncompetitive wastelands created by Big Tech and recognizing the union-busting tactics of quasi-monopolies like Starbucks and Amazon. The bloom might be off the Big Tech / Monopoly rose.

Enter AI, which offers the thrilling prospect of trillions of dollars in additional profits for purveyors of AI and all those companies which use their AI tools.

The American legal system deals with new technologies much as a reptile digests a meal--slowly. I get email from readers about defending the Constitution, something we all support. I am not an attorney, but my impression of Constitutional law is that it is a tediously complex thicket of case law that must be carefully picked through before we can even begin to understand exactly what we're defending: every issue anyone might be concerned about has already accumulated an immense load of rulings and arguments.

This is American jurisprudence: advocacy goes to trial and ruling are issued, some as rulings that will pertain to all future cases and some that will not. The law advances in new fields such as AI as positions are argued before judges / juries and then reviewed by higher courts as losers appeal judgments / rulings.

A great many things we might think are novel have long been settled. Isn't the Selective Service Act a form of involuntary servitude? Nope, that's been settled long ago. The government's right to draft you to fight in a war of choice is unquestionably the law of the land.

AI has certain novel features which have yet to be decided by the processes of advocacy, rulings and appeals. In general, corporations selling / giving away AI tools are claiming these tools incur no liability to the issuers of the tools because they're akin to software that, for example, adds HTML coding to plain text: a tool that performs a process.

This strikes me as incomplete. It seems to me that AI, by its very name and nature, is making implicit claims of utility far beyond mere processing of data or text: AI is called AI because it is adding intellectual value to data or text.

All the disclaimers in the world cannot dissolve this implicit claim of utility that adds value. Since I'm not an attorney, I'm not able to put this in proper legal terms; I am using the terminology of philosophy. But the law is a system based on philosophic principles, and so the language of philosophy plays a key role in broadly applicable legal rulings.

Now let's consider a real-world example. A patient receives a mid-diagnosis and suffers as a direct result of the mis-diagnosis. In our system of law, somebody or some entity is liable for the consequences of the error, and must pay restitution to those harmed by the error.

As fact-finding proceeds, it turns out an AI tool was used in the initial scanning of the patient's data. The company that created the AI tool will naturally claim that the tool was intended only to be used under the supervision of a human professional, and there were no claims made as to the accuracy of the AI tool's output.

This is a specious argument, as the clear intent of the AI tool is to replace human expertise as a means of lowering the costs of diagnosis by accelerating the process and increasing the accuracy of the diagnosis.

Clearly, the tool was designed for exactly this purpose, and therefore deficiencies in its performance that contributed to the mis-diagnosis--for example, the fact that the AI tool rated the diagnostic result with a high probability of accuracy--are the responsibility of the company that issued the AI tool.

Should the court find the AI company 1% liable for the misdiagnosis, the principle of joint and several liability means the monetary settlement falls on whichever parties can pay the settlement. Should the other parties found liable be unable to pay a $10 million settlement, then the AI company might end up paying $9 million of the $10 million settlement, despite their apparently limited liability.

Off the top of my head, I can foresee dozens of similar examples in which an AI tool can be found partially liable for misrepresentations, errors of omission, unauthorized use of confidential intellectual property, and so on, in what can easily become an endless profusion of liability claims.

If the bloom is off the rose of Big Tech, the likelihood of a court assigning liability to those issuing AI tools increases proportionately. If the ruling is upheld by an appeals court, it will generally enter case law and become the basis for similar lawsuits assigning liability to those entities issuing AI tools.

That real harm will result from the use of AI tools is a given. The idea that those issuing these tools should be given a free pass because "we really didn't mean that you could use the tools to reduce human labor and increase accuracy" does not pass the sniff test, nor will it negate advocacy claiming that these tools implicitly make claims about utility that incur liability.

Use an AI tool, get sued. The Wild West of AI's claims of zero liability will soon enter the meat grinder of jurisprudence, and implicit claims of utility will be more than enough to incur liability in a court of law--as they should.

The legal spear in AI's back could prove fatal. A 1% error rate and 1% liability will add up fast.

---

My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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Financial Forecast 2025-2032: Please Don't Be Naive

Rather than attempt to evade Caesar's reach, a better strategy might be to 'go gray': blend in, appear average.

Let's start by stipulating that I don't "like" this forecast. I'm not "talking my book" (for example, promoting nuclear power because I own shares in a uranium mine) or issuing this forecast because I favor it. I simply see it as the most likely trajectory of the global financial system, based on history and the dynamics of human systems. "Liking" it or not liking it has nothing to do with it: the opinions of Titanic passengers who didn't "like" that the ship was sinking didn't affect the outcome.

You already know the global financial system is untenable. In a nutshell, the expansion of production and consumption has been funded by the expansion of credit--money borrowed from future resources and income. The rate of expanding debt far surpasses the anemic rates of expanding production, and this rapidly expanding mountain of debt is perched precariously on the phantom collateral generated by The Everything Bubble, the astounding expansion of asset prices as those with the lowest cost access to credit have bid up every asset class, from real estate to gold to bitcoin to stocks to fine art.

All these assets are phantom collateral because they were bid up on the wings of cheap, abundant credit. History is rather decisive: all credit-asset bubbles pop, and the price of the assets round-trips back to pre-bubble valuations. As the bubble pops, credit shifts from being abundant and near-zero in cost to being scarce and dear.

The commercial real estate sector (CRE) is a real-time example of this dynamic. Half-empty buildings are being dumped at a fraction of their peak valuations, and then sold again for even less or abandoned to default and liquidation. This is how all bubbles pop; there is no other template supported by history. Humans cling to magical thinking and grasp at straws rather than face the unwelcome reality that the cycle has turned and there is no happy ending for those who believe the "real value" of an asset is the peak price at the top of the bubble.

Now that we understand the impossibility of keeping The Everything Bubble forever inflated, let's shift our attention to those tasked with keeping the system from collapsing. In my view, the closest analogy is police officers tasked with protecting the often ungrateful and undeserving while being plagued by do-gooders and naysayers who are safely isolated from the wretchedness they demand the cops deal with in a manner that meets with their refined approval.

In other words, us and them: only those who share the responsibility for protecting the often ungrateful and undeserving while being plagued by do-gooders and naysayers can understand. Outsiders know little of the realities and are often naive, basing their convictions on what they think "should happen" rather than the limitations of real life.

This will be the mindset of the authorities tasked with "saving" the system we all depend on--especially the wealthiest who have benefited the most. These is of course the class that feels most entitled to advocate for special treatment: we're rich and important, so you should listen to us and do what works for us.

In other words, like the do-gooders, naysayers and whiners telling the cops how to do their jobs. Those tasked with saving a system sliding toward an inevitable crisis will have little patience for obstructionists, however well-meaning. The attitude of those carrying the responsibility for saving the system will be: do your part, get out of the way, stop whining and be grateful we're saving the system for your benefit.

Let's now shift to a very common belief of "investors": foreseeing this crisis, we've piled up "hard money" assets that are safely hidden from the grubby, illegitimate grasp of authorities. When the crisis sweeps away the bubble, we'll still be rich, and we'll then scoop up all the bargain-priced assets, making ourselves even richer.

It gives me no pleasure to say the obvious: please don't be naive. Those who will be trying to save the system from collapse understand that every asset is only richly valued now because of the credit bubble. From their point of view, "investors" who are planning to preserve the bubble-valuation of their assets and then emerge to snap up everything for pennies on the dollar are, well, the enemy.

Another widespread belief holds that the hyper-wealthy always sneak through the wormhole and emerge with all their goodies intact. This fosters the idea that if they can do it, so can I. History offers examples on both sides: the great estates of the wealthiest Romans did not survive intact when the empire crumbled (or put another way, when control of the shards shifted to a new elite).

As the bottom 99.5% feel the squeeze, their rage at those at the top not paying their fair share will rise exponentially, and the political pressure on authorities to go after the hyper-wealthy will become too intense to ignore. Many of those trying to save the system will have already had enough of coddled billionaires, bankers and financier grifters.

Another conviction that will be revealed as naive is the faith that the rules will stay unchanged, allowing us to hoard our stash and emerge unscathed to scoop up the bargains offered by the less prescient. History is again rather definitive: the rules will change overnight, and continue changing, as needed. One "emergency measure" after another will be imposed and become normalized.

It's important to put ourselves in the shoes of those struggling with the impossible responsibility of keeping the system from collapsing. From their point of view, everyone trying to evade the wealth taxes, windfall taxes, special assessments, etc. are ungrateful whiners, as what will anyone have if the system collapses? We're doing you all a favor, taking only 10% in a wealth tax to preserve the 90% that remains yours.

Another point of naivete is what happens to obstructionists in a full-spectrum surveillance Corporate-state. China has shown other nation-states how to do it properly: every digital communication and transaction is monitored, and while VPNs and other gimmicks offer a few wormholes, the fundamental reality is: it takes an awful lot of effort to not leave a trail of crumbs, and at some point, is it worth all the effort? It's much easier to just pay the wealth tax, the windfall tax, grumble about it, and move on to enjoy life as best we can.

In China, the local authorities politely invite transgressors to tea, and offer a suggestion to mend your ways and keep your nose clean. Those who insist on mucking up the works after the kindly advice will be neutered one way or another.

The naivete also extends to ways to evade surveillance. We're all going to get by on barter. Really? Have you actually tried to exchange stuff with anonymous others? Like many encounters in online boards, people don't show up, they flake out or decide not to make the deal. It's tediously time-consuming and frustrating unless you already have a network of trusted contacts who do this kind of thing all the time.

In my experience, reciprocity with other trustworthy productive people works better than barter. Instead of haggling over price/value, just give stuff away. In a trusted network, whomever gets the free stuff will scrounge up something to give you for free in return. These networks tend to have a "node," an outgoing, friendly, trustworthy person who can find a welcoming home for whatever is being freely distributed, and pass around what's being given to those who gave freely of their surplus.

Another point of naivete is the belief that as an asset soars in value, the authorities will magically restrain themselves from noticing this juicy target. If we factor in history and human nature, we will conclude the opposite is more likely: the authorities will redouble their efforts to track and collect that which is Caesar's from those trying to evade the collection of everyone's "fair share."

Given the resources of the NSA et al., how plausible is it to think little old me is going to leave no digital crumbs as I go on my merry way? Thanks to automation of data scraping, it's going to get easier and cheaper to scrape data looking for miscreants trying to avoid paying "their fair share."

The whole idea of a wealth tax is it's a tax on all wealth, held anywhere in the world. So burying assets offshore only works as long as the authorities turn a blind eye to tax havens. As pressures mount, trusting the eyes to remain blind might not be as "sure-thing" as many seem to believe.

As specific assets soar in value, a "windfall tax" will become politically appealing. Since all this soaring wealth is unearned, shouldn't the fortunate owners pay a bit more due to the windfall nature of their unearned wealth? Of course they should.

The key point to understand is the system will have to grab enough collateral to fund itself while collateral evaporates in the deflation of the Everything Bubble. This will truly be a case of TINA--there is no alternative. Desperation will drive policy extremes few think of as possible, much less inevitable.

Something else that may be revealed as naive is the faith that moving to another nation-state will offer secure respite from those demanding we render unto Caesar that which is Caesar's. This faith overlooks the global reach of these dynamics: rampant inflation, the debasement of currency, the increasingly desperate need for collateral and revenue to keep the system from imploding, the rising cost of risk and credit, the scarcity of collateral, and so on. How will the nation-state we're moving to respond to these financial crises? What are the odds that they will magically escape the crisis, or come up with a painless solution that doesn't demand any sacrifices of residents? How secure will the rule of law and the wealth of foreigners be once push comes to shove?

In summary: to understand the next 8 to 10 years, start by having some sympathy for the fox and not just for the hare. Here we are, trying to save the system that everyone depends on, taking a modest 10% wealth tax, and the ungrateful wretches are whining and trying to evade paying their fair share.

Rather than attempt to evade Caesar's reach, a better strategy might be to go gray: blend in, look average: post photos of kittens and puppies, complain about the cost of groceries, drive a look-alike vehicle, live in an unremarkable house, render unto Caesar that which is Caesar's, forget about emerging as one of the rich who evaded Caesar and get on with enjoying one's private life focused on well-being, and as difficult as it may be, work up a little gratitude for those carrying the responsibility for keeping the system from collapsing. A system that degrades but coheres is a far better place to live than a system that completely collapses.

It gives me no joy to suggest please don't be naive, but a realistic appraisal of what happens when things unravel suggests there are few limits on "emergency measures" anywhere on the planet and it's best to plan accordingly and focus on what we can control rather than what we can't control.

For more on this approach, here are free excerpts of my book on self-reliance.

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

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Sound Money Vs. Fiat Currency: Trade and Credit Are the Wild Cards

We need to start thinking outside the current system, which has no solutions.

Our convictions about money are quasi-religious: heretics are burned at the stake. I'm not sure which stake I'll be tied to, because all the conventional choices--fiat currency, sound money (gold, Bitcoin) or debt-free currency (a.k.a. MMT)--are all fatally flawed.

To understand why, consider the wild cards in any monetary system: global trade and credit. Let's start with credit, which as David Graeber explained in his book Debt: The First 5,000 Years, has been an integral component of monetary arrangements since the dawn of civilization.

Taxes must be paid and seed purchased for the next crop, and so credit in some form--notched sticks, bills of sale, purchase orders, loans--is the lifeblood of commerce and state revenues. Credit naturally divides into short-term commercial credit--credit extended until the goods or payment are delivered--and longer term credit secured by collateral.

In traditional economies in which gold and silver are money, credit was generally limited to commerce, as credit based on loaning surpluses of gold and silver was limited by the scarcity of those metals. But the demand for credit did not diminish; rather, it increased, which is why small banks (that often went bust) emerged in the 1820s in America to meet the demand from small enterprises for credit to expand.

In an economy in which gold is the only money, credit is limited to a percentage of gold held in reserves, as much of the reserves must be held to fund customer redemptions / withdrawals. This limits the availability of credit.

In a fractional reserve banking system such as ours, one ounce of gold held in reserve is sufficient collateral for a loan 10 times the value of the reserve: $2,300 in gold enables the issuance of $23,000 in new money, i.e. a loan of $23,000, as every loan is new money created by the act of issuance.

What happens to "gold-backed money" when credit expands the supply of money expands 10-fold? The gold reserves are now spread over a much larger sum of money. The actual value of the gold backing each unit of money declines to a fraction of its initial value.

In other words, if credit is allowed to create money, then the "gold-backed" valuation of each unit is massively diluted. If credit is limited to surplus gold/silver loaned at interest, the sum of credit is a tiny fraction of all money in circulation.

Ancient Rome offers an example of a system in which only gold-silver were money. When the empire's silver mines in Spain were depleted, the supply of new money dried up and scarcity forced authorities to shave the actual silver content of coinage, the older higher-value coinage was quickly hoarded and left circulation: this is Gresham's law, that bad money drives good money out of circulation.

Rome also offers an example of trade's impact on money. Rome's wealthy--who naturally ended up with most of the empire's "sound money" wealth--spent freely on luxuries from foreign trade with Africa, India and distant China: silks, incense, gemstones, etc. This trade drained the empire of gold and silver, which was transferred overseas to buy the luxuries.

In other words, trade imbalances drain importers of their gold/silver. President Nixon didn't end the convertibility of the US dollar to gold on a whim; due to rising US trade deficits, America's gold would have been drained to zero in a few years. That's what happens to "sound money" when trade deficits cannot be controlled: those running the trade deficits run out of gold-silver and cease importing goods.

Nixon's hand was forced by the requirements of a global reserve currency, the US dollar. What is often overlooked in discussions of money is the necessity for reserve currencies to be "exported" to the global economy at scale so there's enough units floating around to fund commerce and credit.

If there is insufficient currency available in the global system, the currency cannot function as a reserve currency due to its scarcity. As the global economy increased in size, the sums of US dollars required also increased, requiring permanent trade deficits as the means to "export" the currency into the global financial system.

Many feel that getting rid of the USD's reserve status would be a plus, but those mercantilist nations exporting to the US would disagree, as once trade dries up their gravy train ends. Also unsaid is the reality that many nations must import food and energy, and their trade deficits are thus unavoidable.

A global economy with severely limited credit and trade will be a very different economy than the one we have now, undoubtedly better in terms of reduced consumption but this may not be entirely welcome or usher in an era of stability. The ideal system would be one that enables a transition to a new global economy that doesn't impoverish the bottom 90%.

Interestingly, convertibility to gold didn't restrain the ravages of inflation. Look at the chart of the USD's purchasing power since 1900 and note the value dropped from $25 to $5 during the period that the USD was convertible to gold.

The influx of New World gold and silver via Spain in the 1500s and 1600s also deflated the value of precious metals in Europe.

The larger point is the purchasing power and price of everything is set by global markets: the relative value of precious metals, currencies, commodities, labor, risk, credit--all are set by global markets. Any nation-state which presumes to anchor a price that suits its policy makers only creates a black market for whatever they are attempting to control.

Fiat currencies arose to escape the limitations of "sound money" generated by credit and trade. The problems of fiat currencies are well-known: the temptation to create more currency is irresistible. If currency is simply printed, per Modern Monetary Theory (MMT), a.k.a. debt-free currency, we end up with billion-dollar bills because the increase of currency above and beyond the increase in production of goods and services reduces the value of each unit of currency.

Borrowing money into existence by selling Treasury bonds serves to limit the collapse of currencies, but it imposes interest payments (mostly paid to the wealthy who own 90% of the nation's financial wealth) which drain the economy of vitality, leading to stagflation / decline.

We need to start thinking outside the current system, which has no solutions: debt-free money leads to billion-dollar bills, "sound money" (gold or bitcoin, it doesn't matter) ends up in the hands of the wealthy and borrowing money into existence leads to stagnation as soaring interest sucks the economy dry.

I have explored money in two books:

Money and Work Unchained and

A Radically Beneficial World, which proposes a system that creates new money at the bottom of the wealth-power pyramid rather than at the top. Yes, I understand this is wildly impractical in the current zeitgeist, but all conventional monetary systems run aground on their intrinsic limits / flaws, we'll have to start somewhere other than the status quo.




New podcast: Tommy Carrigan and I discuss the Fourth Turning

New podcast: Self Reliance & The Importance of Choice (24 min), Part 2 in a three-part exploration of self-reliance.

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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Subscribe to my Substack for free

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Could US Treasuries Become the Trade of the Decade?

The expediencies and policy extremes have yet to be explored, much less exploited.

Napoleon is reputed to have said, "Do you know what amazes me more than anything else? The impotence of force to organize anything." This is the lament of someone holding the reins of power: that this earthly power has limits.

Two things amaze me:

1. The public's complacent confidence in the permanence of the global financial system. Put another way, what amazes me is the scarcity of awareness of the financial system's fragility and vulnerability to collapse, a fragility that has increased as a result of policy extremes enacted to maintain a facade of security and confidence.

2. A general lack of appreciation for how few steps we've taken on the path of extreme central state/bank policies, a path that stretches over the horizon, beyond what we conceive as possible.

This complacency extends to proposed solutions to this systemic fragility. For example, many believe that all we need to do to fix the system is return to sound money such as the gold standard or a bitcoin-based system.

The possibility that there are no solutions doesn't compute, as it goes against the zeitgeist of optimism: of course there's a solution, preferably a technological solution that enables a trillion-dollar monopoly or cartel.

The widespread confidence in a predictably secure financial future is equally amazing. Sixty years of stability has generated a recency bias of immense strength: of course we can plan our retirement 20 years hence, for the future will naturally be a seamless extension of the recent past.

The more one knows about the global financial system, the greater one's appreciation of systemic risk. The more one knows about the normalization of extreme policies enacted to stave off the collapse of the system in 2008-09, the greater one's appreciation for the vulnerability of a system propped up by expediencies that are now permanent scaffolding for a system that is by design self-liquidating: all the "money"-printing, debt and leverage will dissolve because they will have no other choice but to dissolve.

To Napoleon's point, there are limits on solving the problems created by "money"-printing, debt and leverage by printing more "money" and expanding debt and leverage.

Which brings us to the question: how will those in power put off the inevitable end-game as long as possible? Per Napoleon, their powers are earthly and limited. But this doesn't mean they're already exhausted. If the history of financial crises / depressions is any guide, authorities have barely started exploiting the grab-bag of expedient measures available to them.

Which brings us to US Treasuries. The expedient game plan for the past 15 years was to inflate a global Everything Bubble via expanding "money"-printing, debt and leverage, on the implausible but oh-so appealing theories that 1) borrowing more from future earnings and resources was painless and 2) inflating the wealth of the already-wealthy would generate a pain-free "wealth effect" some of which would trickle down to the working stiffs who don't own any of the assets being pushed into orbit.

We can summarize this "plan" thusly: save every asset class and every constituency. There was something for everyone in the grab-bag of expedient deficit-funded giveaways and bubble-economics.

Now that the hangover phase of the party looms, those in power won't be able to save everything and everyone: a bunch of stuff is going to be tossed overboard. This triage--who keeps a seat in the lifeboat and who's tossed overboard--is tricky. The bottom 60% have already been tossed overboard, and those between the top 10% and bottom 60% have been stripped of their life vests.

In other words, the bottom 90% are already either treading water or on the way to Davy Jones' Debt-Serf Locker. Inflicting more pain on them raises the risk of social-political revolt, and so those in power will have a lamentably limited set of assets and constituencies to stripmine. Making it even trickier, this set of constituencies holds virtually all the nation's wealth and political influence.

The first step in crisis is to save what must be saved to keep the ship afloat: the federal government's ability to borrow more money and float that rising debt by selling Treasury bonds. This isn't just a necessity for the domestic status quo, it's also a necessity for the Imperial Project, which must have the capacity to "export" dollars in size globally to preserve the benefits of issuing a reserve currency.

The obvious way to save what must be saved is to reward owners of Treasuries and punish everyone else: make owning Treasuries safer and more lucrative than owning any other asset.

The conventional mind rebels at this: no way would the government punish all other asset classes. Alas, livestock being herded to the next pen might voice the same confidence based on recency bias: so far, we've been treated splendidly.

Yes, so far. But when push comes to shove, who's positioned to overthrow the state and who's a minion of the state? As various pundits have observed, quantity has its own quality. It's far less risky to push 1 million wealthy overboard than to push 100 million already disenfranchised overboard.

The possibility of requiring a percentage of 401K and IRA retirement accounts be invested in Treasuries has been floating around for years. This is an excellent policy option, but it leaves the super-wealthy free to hoard non-Treasury assets. That will have to change, as the top 10% own 90% of all financial assets.

The new game will be to push a significant percentage of the $300 trillion in bubble-assets sloshing around the global economy into Treasuries. The grab-bag of policy options is capacious: everything from outright expropriation to wealth taxes to windfall taxes to restrictions on ownership are all available: mix and match, try a few or try them all.

The restlessly disgruntled disenfranchised will support wealth taxes and windfall taxes because they won't be paying them. They'll also support active efforts to track down and punish wealthy evaders of these taxes, and the eradication by any means necessary (ahem) of all the tax havens the Empire has left alone in coddling its financial elites.

Wealth taxes and windfall taxes are easy sells: why shouldn't the wealthy pay more? At the same time, ease the taxes due on income flowing from Treasury bonds, and voila, the calculus of risk and return change: why own an asset that will be taxed at 80% when sold? Why own an asset whose income stream now carries a higher tax rate?

All of these policies rewarding Treasury owners and punishing every other asset class can be sold as serving the public good and protecting us from risk. Every one can start with a single twist of a screw that is then tightened at regular intervals.

Unbeknownst to the financial elite who has benefited so enormously from the past 15 years of bubble-economics, they're not as indispensable as they believe. They can be tossed overboard and replaced with a new elite who understands the game has changed from inflating Everything Bubbles to funneling capital into Treasuries at scale.

Please understand it's nothing personal. It's just business. Those who feel their wealth and power are untouchable will discover the rules will change overnight, and keep changing, and going along to get along might be the best strategy: sell everything and buy Treasuries.

We might even find there's a new category of dangerous terrorist: the financial terrorists who hoard wealth by evading the policies protecting our security and freedom. Rendition them to the 'Stans, baby, they have it coming.

All earthly power is limited, but that doesn't mean it's as toothless as many presume. The expediencies and policy extremes have yet to be explored, much less exploited.

Save what must be saved to keep the ship afloat. Is there any doubt what qualifies? Tax breaks for the super-wealthy? The Everything Bubble? Um, guess again:



Quantity has its own quality:




New podcast: Tommy Carrigan and I discuss the Fourth Turning

New podcast: Self Reliance & The Importance of Choice (24 min), Part 2 in a three-part exploration of self-reliance.

---

My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

Self-Reliance in the 21st Century print $18, (Kindle $8.95, audiobook $13.08 (96 pages, 2022) Read the first chapter for free (PDF)

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $3/month patron of my work via patreon.com.

Subscribe to my Substack for free

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NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Mark ($5/month), for your magnificantly generous subscription to this site -- I am greatly honored by your support and readership.		Thank you, Jay ($50), for your marvelously generous subscription to this site -- I am greatly honored by your support and readership.

Thank you, Tyler L. ($50), for your splendidly generous subscription to this site -- I am greatly honored by your support and readership.

Thank you, Sarnj ($50), for your superbly generous subscription to this site -- I am greatly honored by your support and readership.

Read more...